K-Electric Reports Profit of Rs. 6.8 Billion in H1FY21

K-Electric has reported a net profit of Rs. 6.872 billion for six months of the financial year 2020-21, up by 146%. It had reported a profit of Rs. 2.79 billion in the same period last year

This includes Rs. 4.6 Billion actual write-offs claim as per the mechanism provided under KE’s multiyear tariff. The Board of Directors of KE decided to invest the profits earned back into the business.

During the period under review, the company showed strong operational performance on the back of an improved macroeconomic environment after uplifting of the COVID-19 lockdown along with investments of around Rs. 26.422 billion across the power value chain.

As a result, during the period under review, units sent outgrew by 4.8 percent, along with a 5.5 percent increase in units billed and 0.6 percentage points reduction in T&D losses.

It is important to note that the key driver of this growth was the industrial segment, registering a ten percent higher growth compared to the same period last year.

Driven by these operational improvements, the company’s gross profit increased by 23 percent compared to the same period last year.

Earnings per share of the company were increased to Rs. 0.25 from Rs. 0.10.

Upcoming Power Projects

The company continued to make strides on its 900 MW RLNG Project. The civil structure of critical systems has been completed, and the installation of the Gas Turbine, Steam Turbine, and Unit Main Transformer for the first unit (450 MW) is in progress.

The company signed Heads of Terms Agreement with Pakistan LNG Limited (PLL) in October 2020 for RLNG supply and is in discussions with PLL for the signing of GSA for 150 MMCFD RLNG supply.

In this respect, the Ministry of Energy (Petroleum Division) has also directed relevant stakeholders, including PLL and SSGC, to resolve pending issues and to expedite the execution of GSA, to ensure timely fuel supply and commissioning of the first unit (450 MW) of 900 MW plant by summer of 2021.

Furthermore, with the anticipated growth in power demand in the upcoming summer, KE is in continuous engagement with the Government of Pakistan and National Transmission & Distribution Company for off-take of an additional 450 MW through existing interconnection points.

It is expected that the required rehabilitation works will be completed by March 2021, enabling the evacuation of an additional 450 MW through existing interconnections from April 2021 onwards.

Issues and Challenges

A key concern for KE is the prevailing circular debt situation and disputed mark-up claims, which, besides adversely affecting the sustainability of the company, are also major hindrances in the execution of supply agreements with SSGC and NTDC/CPPA.

As of December 31, 2020, KE’s net receivables from various Federal and Provincial entities stood at around Rs. 78 billion on a principal basis having a consequential impact on the company’s cash flow position and its ability to enhance the pace of investment in power infrastructure.

To resolve the issues related to KE’s payables and receivables, discussions around Terms of Reference (ToRs) for arbitration facilitated by the Privatization Commission are ongoing, with the company seeking a fair and equitable resolution of the issue according to the law.

Furthermore, KE also remains in continuous engagement with NEPRA for pending approval of requests made within the MYT mid-term review and quarterly tariff variations, along with write-off claims, for FY 2017 to FY 2020.

KE’s Future Plan

Going forward, the company remains committed to its planned investments of USD 1.5 Billion between FY 2021 to FY 2023, spread across the entire power value-chain, including expeditious completion of 900 MW RLNG plant, along with setting up of new grid stations for off-take of additional power of up to 1,400 MW from the National Grid by 2023, subject to required approvals.

However, sustainable resolution to the issue of government receivables and timely approvals by NEPRA, as mentioned above, remain critical to the execution of these planned investments.

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